Тег: Bazhenov

A positive feedback loop breeding inequality. Terrifying.

I watched the conversation between Grigory Bazhenov and representatives of the European University on the topic of inequality.

I didn’t do this immediately after the video was released because the topic seemed boring and leftist to me; it is obvious that if inequality is caused by redistribution through plunder (for example, taxes) and coercion (for example, regulations), then one can oppose the consequence, but it would be more useful to eliminate the causes. And if inequality is caused by the fact that people voluntarily give more money to Alice than to Bob, then one can only be happy for Alice and reflect on whether something can be adopted from her practices so that we can get more too. But then I had a bit of free time, took a look, and didn’t regret it.

The part where it was listed that there is income inequality, wealth inequality, and inequality in the number of limbs was not very interesting. I was struck by one specific strong take that I would like to discuss—regarding inequality caused by the difference in time preference.

Its content is approximately as follows. If one economic agent has a lower time preference, and economic agents can lend to each other at interest, then, all other starting conditions being equal, in the long run, he will plunge all economic agents with a higher time preference into debt bondage, with the further prospect of starving to death. This is, obviously, a mathematical model; however, I immediately recalled historical precedents.

Ancient Athens was formed by a union of Ionian tribes settled in Attica, with an initially fairly high level of equality. Over time, however, the stratification between citizens increased, and some gradually fell into debt bondage to others. This led to civil unrest, and as a result of Solon’s reforms, all old debts were forcibly forgiven, land was redistributed, and debt slavery was prohibited. In other words, the market—due to the difference in time preference—led to extremely unpleasant consequences, which were then corrected by purely etatist methods.

The emancipation of the peasants under Alexander II in the Russian Empire provided roughly equal starting conditions for all members of any given peasant community. However, again, the difference in entrepreneurial abilities and time preference over half a century led to stratification from kulaks to hired laborers, with the latter losing their means of production and often finding themselves in credit bondage. Then there was a civil war, followed by a complete redistribution of property and the writing off of old debts.

The question is: what can free-market anarchism oppose this mechanism with under modern technological conditions? Because if we answer “nothing,” it will mean the unviability of the anarchic model—it will inevitably be replaced by something much more leftist, after which, at minimum, property will be redistributed and debts written off, and at maximum, successful entrepreneurs and their heirs will be hanged from lamp posts.

Let’s look at what mechanisms the free market provided to counteract the mentioned effect in the two previous examples.

Becoming landless, selling one’s household members and oneself into debt slavery was not the only possible development for a landowner with a higher time preference or someone less competitive for some other reason in the ancient polis. Furthermore, as such people accumulated, the polis established colonies. There, land-poor colonists received much larger plots than in their homeland, and with them, a new chance for prosperity. This extensive path to solving the problem of inequality led to the colonization of the entire Mediterranean by the Hellenes. Subsequently, a division of labor arose between the colonies and lively trade began. Now, instead of farming a small patch of land, our Athenian could engage in, for example, molding amphorae or sewing sails—this also gave him a new chance for prosperity.

Similarly, becoming a hired laborer was not the only option for an unlucky peasant in the Russian Empire either. He could become a colonist and move to Siberia, or move to the city and become a worker. Under the conditions of a freer market in the USA, urbanization absorbed a huge number of former farmers without any revolutions, and those who remained began to cultivate much larger areas using much more serious equipment, supplied to them thanks to the much higher-paid labor—compared to that of a hired hand—of their former poor neighbors.

So I believe that an anarchic society under a free market will be able to avoid the scenario embedded in the mathematical model with different time preferences but unchanging market conditions. If the emergence of new markets is not legally restricted, then those with a higher time preference will actually strive to take advantage of new opportunities and obtain windfall profits—while those with a lower preference will stay in a reliable but relatively low-margin business, and everyone will be relatively well off. The second factor weakening intertemporal inequality is personal freedom. You are not a member of a community. You are not the property of the head of the family, who can sell you into slavery to pay off a debt. You are self-owned; you have your own time preference, your own inclinations and talents. You won’t perish. In any case, you are not doomed to perish, and let the scary mathematical model not frighten you.

Money, a continuation of the discussion

I am grateful to Grigory Bazhenov for continuing the discussion about the future of money. Cross-posting on Telegram is a somewhat autistic format for conducting a conversation, but what can you do—it’s a quirk of the platform.

Consumer inflation in the USA.

Here is my quote from our discussion in the YouTube comments:

If people are sitting at home in quarantine, then the production of consumer goods and services will decrease one way or another. Meanwhile, governments are proposed to subsidize people’s lost wages, meaning they will have money to go to the store, but goods will appear there in smaller quantities. In other words, either the government regulates prices, as already announced in Russia, and gets a shortage, or it doesn’t regulate, and gets price increases.

After some time, I read in a post by the authoritative Americanist Dudakov:

The forecasts of economists, who predicted that after the epidemic the USA and other Western countries would experience a jump in consumer inflation for the first time in 40 years, are coming true.

The spike in meat prices served as an illustration there, but the problem is much broader. I had not read the economists’ forecasts mentioned by Malek, and I made my own forecast based on the simplest logic. To be fair, I thought governments faced a dilemma—regulate prices or accept their growth. It turned out that Trump resorted to a third option—direct directive management of production.

However, the assumed rapid recovery of developed economies will most likely lead to the fact that prices for temporarily underproduced consumer goods will return to values close to pre-crisis levels. So, on this relatively unimportant issue, I see little sense in debating for long.

The role of Bitcoin

My original question to Grigory was formulated as follows:

How will an economy behave in which money created in a fractional reserve banking system and money that does not provide for fractional reserve circulate in parallel on comparable scales?

I am not an economist, and I was interested to know the opinion of professionals about how the behavior of a system with the proposed parameters would look. Alas, instead of an answer, I received assurances that Bitcoin’s capitalization today is too small, its volatility is too high, it cannot be used as money, it is poor as a hedge asset, and so on. In short, I was told about today’s Bitcoin, not about a hypothetical situation in which its capitalization has already reached values comparable to the money supply of global reserve currencies, or at least gold.

Well, for now—yes, I fully agree that Bitcoin is more volatile than gold, that it is a poor hedge asset, and that its liquidity is lower than that of the dollar (although on the global market, Bitcoin’s liquidity is much higher than that of the Russian ruble). Today, the role of Bitcoin is less an instrument for short-term speculation and more an instrument for long-term investment. For someone who bought Bitcoin five years ago, it doesn’t matter much how much today’s rate jumps, because they have been firmly in the green for a long time. Similarly, for today’s buyer, it doesn’t matter much at what price they buy if they intend to hold Bitcoin for at least five years. They will be in the green anyway. If Grigory disagrees with this statement, it would be interesting to read his arguments.

However, even in that unlikely situation where the long-term trend of the BTC/USD currency pair turns from growing to horizontal or even falling, Bitcoin retains its significance as digital peer-to-peer cash—that is, value that can be passed from hand to hand via communication channels without using unreliable intermediaries such as state-regulated banks or transfer systems. However, my question to Grigory concerns only that hypothetical situation where the capitalization of BTC and the volumes of trade in it have already grown significantly—not the current picture, which we already know.

Unsecured obligations and fractional reserve

Separately, there is a post by Artem Seversky stating that money is an anti-commodity, and that issuing loans from own savings is inefficient, and it is much more sensible to issue loans with money created out of thin air. I see no reason to forbid anyone from giving others unsecured obligations; it is quite enough for me that secured and unsecured obligations cannot be confused, and beyond that, let market mechanisms work.

For example, I can use Bitcoins in settlements, and if I receive a Bitcoin loan, it is only because the lender actually had those Bitcoins on hand before kindly lending to me. Or I can issue my own ancap-tokens, tie their price to a single commissioned article—and sell tokenized obligations for creating texts to anyone willing in exchange for consumer goods. This would be an unsecured obligation, but what does fractional reserve have to do with it? Fractional reserve is if someone buys a hundred of my tokens and issues a thousand of their own, with an obligation to exchange them for mine upon first demand.

Franklin looks at the gypsy physical Bitcoin as an unsecured obligation

Bitcoin’s Ascent

I rarely initiate public discussions myself; far more often, I publish reactions to my own texts and answers to those reactions. But not long ago, I couldn’t resist. In the video Money printer go brrr on the FuryDrops channel, Grigory Bazhenov attempted to present the basics of macroeconomics regarding the money supply, the workings of the money printer, and the money shredder in fairly popular terms. The video suggested that the Federal Reserve pumping trillions into the economy would not lead to inflation, but would merely compensate for the decrease in the multiplier.

In the comments, I inquired how the presence of a factor like Bitcoin—where the user chooses whether to operate within full reserves or turn to centralized intermediaries whose multiplier may be greater than one—would affect this entire model. I also predicted consumer inflation in the USA. The discussion was quite long; it’s better to look at the thread under the video yourself. There, Grigory Bazhenov and Artem Seversky objected both to the applicability of Bitcoin as money and to the possibility of inflation in a shrinking US economy. Artem even wrote a separate post about how money, by its very nature, means unsecured obligations and therefore can only be based on fractional reserves; otherwise, the economy stalls.

What do we see literally two weeks later. Consumer inflation indeed spiked in the USA. Using Trump’s helicopter money, people actively bought Bitcoins; this is evidenced by a beautiful graph showing the share of deposits of exactly 1,200 dollars (the amount paid to all US citizens) arriving at the most popular American crypto exchange, Coinbase, immediately after citizens received gifts from the federal treasury.

Finally, yesterday the Bitcoin price, as I promised on March 16, the day the price dropped to 4,400 dollars, shot up, and if anyone failed to buy in over the past month and a half, they must be feeling sad now. Though, it wasn’t the most suitable time for investments.

Finally, during this time, it has become clear that one should not pin hopes on corporate cryptocurrencies like Libra or Ton: they are too vulnerable to the ill will of regulators. Therefore, Bitcoin still looks like the only alternative money for a bright stateless future, and I feel sorry for clever economists like Grigory Bazhenov, who consciously try to distance themselves from this future: after all, you might find that there is simply no suitable place left for you there.

On modernization

I listened to Grigory Bazhenov’s conversation on Vadim Politikov’s channel. The conversation is boringly titled “Why Left-wing Economies are Doomed,” so I didn’t immediately decide to spend two hours on the interview, assuming that it would indeed be a banal explanation of why left-wing economies are doomed. Fortunately, Grigory, fueled by good whiskey, discussed many other things, and in particular, towards the end, modernization.

Main points:
1. In a state that is already leading, authoritarian modernization from above is impossible, because a plan works only when you know where to go; the leader, however, will have to pave the way through the operation of spontaneous orders.
2. Forced modernization from an agrarian to an industrial society within the framework of catch-up development is possible. Universal education, a transport network, a banking system—and that’s enough; after that, just don’t interfere with the work of institutions. Those states that limited themselves to this gentleman’s set, and then allowed society to develop independently, were able to successfully cut the corner, catch up with the leader, and many even surpassed the unfortunate Great Britain, once the world’s first economy. Those that played at dirigisme, crawled forward in bursts, with great costs—in short, it didn’t turn out very well.
3. Forced modernization from above from an industrial to a post-industrial society is theoretically possible, but the recipe consists precisely of the dismantling of authoritarian mechanisms, and this is not a recipe that most leaders are willing to hear. However, Grigory does not believe in dismantling from below through agorism, and this is the point on which I would discuss with him, provided, of course, that he doesn’t find a conversation partner in his own weight class.

In connection with this, I recalled a book I recently read by Dmitry Travin and Otar Margania, “Modernization: from Elizabeth Tudor to Egor Gaidar”. It is an excellent selection of historical anecdotes about who and how tried to spur the nag of history in their countries. It mainly describes a long line of kings, prime ministers, and other ministers, while only two inseparable partners of the twentieth century—Keynes and Hayek—stand apart, who personally conducted no reforms, but exerted a powerful influence on minds.

Historical anecdotes are pleasing because they are not dry theory, but a multitude of yarns, from which each is entitled to derive their own moral. In general, these stories do not contradict Grigory Bazhenov’s points, and instead complement them well, so I recommend checking them out, especially since it is a fairly light, entertaining genre.

And finally, I will give you a song by Timur Shaov, “From where modernization in Rus’ began,” to create a proper stereo effect.